Governor would spend cap-and-trade funds

By CMTA Staff

Capitol Update, Jan. 16, 2014 Share this on FacebookTweet thisEmail this to a friend

Governor Jerry Brown has proposed in his 2014/15 state budget that $850 million of cap-and-trade revenues should be allocated to various purposes. In millions of dollars, the breakdown is as follows – High speed rail ($300), low carbon transportation and sustainable communities ($300), energy efficiency and clean energy ($140) and natural resources and waste diversion ($110). (Last year’s budget borrowed $500 million of cap-and-trade revenues to cover the state’s General Fund spending. This year $100 million of the borrowing would be paid back.)

AB 32, the 2006 law that set the state’s goal to reduce greenhouse gas emissions and gave rise to the cap-and-trade program does not speak to the collection and use of cap-and-trade revenues. Subsequent legislation established a framework for approving an investment plan for revenues, as well as a formula to allocate 25 percent of the revenues to benefit disadvantaged communities. 

CMTA believes that the collection of the cap-and-trade revenues violates the law because it is not authorized by AB 32 and it is a “tax” that has not been approved by a two-thirds vote of the legislature. Reductions to achieve the AB 32 goal will be accomplished because of the cap on emissions – there was no need for the California Air Resources Board (CARB) to design cap-and-trade to collect and spend revenues.

A California court decided last November that the charges are more like a fee than a tax and are therefore legal, but the court noted that “it is a close question” and the decision will be appealed. It is also unclear how the revenues may legally be spent, even if their collection is legal. Traditionally, spending revenue defined as a “fee” must satisfy “nexus” criteria relating to the amount of the fee, the reason it is being imposed on the payer, and the use of the funds. Until the legal issues are resolved, a prudent option would be to retain the funds and avoid the cost and confusion of a possible refund requirement if the charges are determined to be illegal taxes. 

No matter the ultimate resolution of the legal issues, we urge the Governor and lawmakers to implement the clear language of AB 32 to “achieve the maximum technologically feasible and cost-effective greenhouse gas emission reductions” for every regulation under AB 32, including the cap-and-trade program.

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